Things may not be so bad for the Generation X and millennial cohorts after all, despite the financial challenges of inaccessible house prices, crippling student debt and job insecurity. For they — or at least some of them — are set to inherit a staggering amount of money from their ageing baby boomer parents over the coming decades.
The wealth of the postwar boomer generation has been underpinned by 20th century economic growth, jobs for life and decades of rising property values, and more than £100bn is now inherited and gifted in the UK each year, according to Demos, a think-tank.
That number has been doubling every 20 years or so since 1979 and is expected to double again by 2040. It’s a global trend, too. A recent Vanguard report shows that by 2030, around $10.6tn of wealth will have been transferred between the generations in the US, $3.5tn in Europe and $2.8tn in Asia.
Yet the report also highlights sobering statistics on the retention of family wealth. It found that 70 per cent of wealthy families lose their wealth by the second generation, and 90 per cent by the third. Rathbones said its experience suggested this was through a combination of assets being dispersed or capital lost — and in the UK, the potential effects of inheritance tax. So it appears there’s a place for professional advice.
At the same time, though, parental financial advisers are more than likely to find themselves in the line of fire, with 87 per cent of children planning to take management of their inheritance elsewhere, according to Cerulli Associates.
There are good reasons for this: beneficiaries may decide to use their windfall to clear a mortgage, or invest it with their existing manager, or they may prefer a cheaper robo-manager.
But it does mean that family advisers can’t assume they will be the manager of choice for affluent younger beneficiaries — which is causing some fairly rapid changes in the industry.
For example, a digital offering is likely to be central to most clients’ expectations these days, even if they are not tech-native. It’s an area where “disrupter” online wealth managers are strongly placed to appeal to newly affluent younger investors.
Netwealth, a wealth manager, claims its average client age is 50-something — 10 years younger than that of conventional wealth managers. Forty per cent of its clients are under the age of 45.
“The younger generation are acutely aware of high costs and limited technology, and so often seek different managers from their parents,” says Charlotte Ransom, Netwealth chief executive. “Our main approach is to ensure clients have a readily accessible and user-friendly digital interface, paired with our financial advisers for those who want to speak with expert humans.”
Differing priorities may extend beyond service delivery, to the kind of investments favoured — a greater interest in sustainable, ESG or impact investing among younger family members being an obvious example. Annabelle Bryde, head of Barclays Private Bank and Wealth Management, says 37 per cent of millennials and Gen Z have invested sustainably — “and almost half are considering it”.
Such differing perspectives can be a source of tension, says Jane Sydenham, investment director at Rathbones.
“We do come across differences between generations in how wealth is managed, which can sometimes be polarising. For instance, the older generation may be happy to hold mining stocks, but the younger generation is not. We mustn’t assume the next generation has the same values as the parents.”
Ultimately, she says, a successful transition means the next generation views its inherited wealth as family money, rather than all its own. “That gives a sense of shared responsibility, which really helps in taking the right level of risk and a longer-term view.”
Conventional wealth managers still place more emphasis on building a core long-term relationship between adviser and client. At Barclays, Bryde says: “We are continuing to enhance our digital offering and to automate where we can, but fostering a personal relationship with our clients is still our number one priority.”
Many wealth managers focus on a gradual and carefully crafted transition of wealth from parents to family, building in financial education for younger members in the process.
$10.6tnAmount of wealth in the US that will be transferred between the generations by 2030
Rob Burgeman, divisional director of investment management at RBC Brewin Dolphin, says they use younger members of the team to deal with people of their own generation.
“This is important in the sense of being able to communicate appropriately and relevantly, but also in terms of longevity — the journey a younger client embarks on is shared with an adviser of their own kind of age.”
But Burgeman even questions whether the much written-about generational divide will end up being such a big deal after all. “Lifespans have extended,” he says, “and we have many more very elderly clients than we have ever had in the past.”
This means not only that many are spending more of their funds on long-term geriatric care, but also whatever’s left may not reach the next generation until they are in their 60s or even 70s — and the same is likely to apply to inheritance for Gen X and the millennials.
“Advisers frequently focus their efforts on cultivating NextGen in trying to secure the assets they may inherit, and many of these programmes are for teenagers or children in their late 20s,” says Paul Kearney, managing director of investment consultancy ARC. “But in reality, those inheriting are usually in their late 40s, 50s or 60s.”
The bottom line, however, is that, despite how we like to group boomers or millennials together, it’s hard to make generalisations.
Many of those coming into an inheritance in the coming years will have had no previous dealings with wealth managers. For them, the choice may be driven by cost, a snappy website, clever app or word of mouth among peers.
Long-standing family managers will need to move with the times to keep the business of coming generations.
https://www.ft.com/content/00d4ad2a-e41d-4c6e-92fd-e5cfce6cd7a4
